What are the new rules relating to the use of special VAT invoices?
The SAT recently issued revised rules relating to the use of special VAT invoices under the anti-counterfeit control system. The new rules will come into effect on 1 January 2007.
The special VAT invoices must be “used” under the anti-counterfeit control system. “Use” includes “purchase”, “issue”, “cancel” and “approve special VAT invoices and email containing the relevant information”. The anti-counterfeit control system will be conducted by limiting the maximum amount of such invoices. The maximum amount of invoices is proposed by the taxpayer and the tax authorities will conduct on-site audits and approve the amount.
If the taxpayer’s accounting system is deemed to be “unsound”, the taxpayer will not be able to purchase or issue special VAT invoices. An unsound accounting system is one that contains inaccurate information relating to input or output tax, the amount of VAT payable or other VAT-relevant information. Use of a special VAT invoice will also be denied if the taxpayer violates the taxation collection and administration rules and does not accept the relevant tax authorities to handle; or if the taxpayers issues false VAT invoices or uses special invoices borrowed from others (among other reasons) and the taxpayer fails to correct the situations after the relevant tax authorities instructs the taxpayer to do so.
Taxpayers will be required to issue special invoices in transactions involving the sale of goods or the provision of services. Special invoices are not required for retail sales of consumer products such as tobacco, alcohol, food, garments, cosmetics, and shoes and hats (parts related to labor safety and protection are excluded). Small-scale taxpayers will be permitted to apply to the tax authorities to issue special invoices on their behalf. Special invoices will not be issued for the sale of tax-free items (except those as required by law and regulations).
General taxpayers will be required to file a VAT return with the tax authorities within the VAT filing period, i.e. taxpayers will need to submit to the tax authorities the VAT electronic data contained in the IC card or IC card plus diskette. Special invoices used for input tax deductions will need to be in compliance with the authentication requirements set by the tax authorities. Failure to comply (e.g. failure to conduct authentication or if the taxpayer has inconsistent identification numbers or invoice codes) will result in a disallowance of an input tax credit. In such cases, the tax authorities will return the original invoices and the purchasers will be entitled to request the seller to issue new invoices. Where there are repeated violations of the authentication requirements, the taxpayer will not be allowed to credit input tax against output tax. The original invoices of repeated violations will be retained and investigated. They will be treated in accordance with the reasons for violations.